Will more jobless benefits help economy?

JESSE J. HOLLAND

Published 7:00 pm, Sunday, February 3, 2008

WASHINGTON (AP)  For a bipartisan majority of senators, providing three months or six months of extra unemployment checks to more than 1 million jobless people is a better way to dig the economy out of a recession than just printing tax rebate checks.

Some economists agree, and undoubtedly, so do the nearly 1.3 million unemployed workers who face losing an average $282 a week in benefits before June.

But there is strong opposition leading up to a Senate vote in the week ahead on whether to add an extension of jobless benefits to a $161 billion House-passed combination of tax rebates and business tax cuts.

Consider Deborah El, a 64-year-old diabetic who lives in Pittsburgh. She will exhaust her 26 weeks of regular benefits this month after being laid off from her job as a program coordinator at a nonprofit literacy agency.

El is taking care of her 26-year-old disabled daughter, Orissa, while also looking for a job and trying to find a new place to live.

I dont know what Im going to do. Im really scared, she said. Ive never been like this before. Ive always been employed, Ive always worked. I went back to school a few years ago and got a masters degree, but it doesnt mean anything.

As the economy has slowed, more people have signed up for jobless benefits. The situation can only get worse given the report last week that employers payrolls by 17,000 in January  a job loss not seen since the tail of the last recession in 2003.

The unemployment rate also is on a generally upward trend. It jumped to 5 percent in December, the highest since right after the Sept. 11 attacks in 2001, then dipped to 4.9 percent in January.

Last week, the number of laid off workers filing applications for unemployment benefits soared by 69,000 to 375,000. It was the most new claims in one week since October 2005, when Hurricane Katrina and the other Gulf Coast storms disrupted the economy.

The National Employment Law Project estimates that 1.28 million people now collecting unemployment checks will be unable to find a job in the next six months and thus lose that help.

The plan before the 100-member Senate will need 60 votes to prevail. It would cost $14 billion and extend unemployment payments for 13 weeks nationwide to people whose 26 weeks of regular benefits have run out.

People without jobs in states where the unemployment rate has averaged 6.5 percent or more for three months could qualify for an additional 13 weeks of benefits, or 52 weeks altogether. Only Michigan would qualify for the extra 13-week extended benefits now; more states could join it if the job market continues to worsen.

Every economist will tell you that stimulus spending will get into the economy much quicker than a tax rebate, says Sen. Charles Schumer, D-N.Y. Mark Zandi, chief economist at Moodys Economy, estimates that every dollar spent on extending jobless benefits will generate $1.64 in new economic activity. Income tax rebates, he said, generate $1.26 of economic activity for every dollar they cost the Treasury.

It is hard to think of a group of Americans who are more likely to spend the marginal dollar than families that have been forced by job loss to scale back their normal standards of living, said Alan S. Blinder, a Princeton University economics and public affairs professor.

Zandi said rebates have the added advantage of helping fight off a loss in consumer confidence.

Nothing is more psychologically debilitating, even to those still employed, than watching unemployed friends and relatives lose benefits, Zandi said. House Democrats, in their negotiations with Republicans and the White House, sacrificed extended unemployment benefits in a deal to let millions of people who do not pay income taxes but earn at least $3,000 a year share in the rebates.

Many conservatives and Republicans view jobless benefits as a drain on the economy rather than a potential boost to it. Sen. Judd Gregg, R-N.H., said extending jobless benefits may keep people from working.

Most people find a job in the last two weeks of their unemployment, Gregg said. Thats human nature. They stay on unemployment almost until the end and then they find a job. If you extend it another year, those folks who could be productive, producing a job, creating economic activity by having a job will stay on unemployment even though there may be a job out there that they could take.

Unemployment insurance is a joint program between states and the federal government that is almost completely funded by employer taxes, either state or federal. Only three states  Alaska, New Jersey and Pennsylvania  collect taxes from workers for their unemployment benefit programs.

Currently, people who are out of work generally through no fault of their own can collect up to 26 weeks of state aid in most states, with an additional 13 weeks available in states that have high unemployment rates.

The Labor Department estimates that 7.5 million people got about $32.2 billion in unemployment benefits between October 2006 and September 2007.

The average weekly benefit is $282; Hawaii has the highest state average, $384.16, and Mississippi the lowest, $176.05, according to the most recent Labor Department data.

Congress has extended the benefits before during periods that turned out to be recessions: twice in the 1970s, again in the early 1980s and 1990s and most recently from March 2002 through December 2003.